Clinton wants access for Puerto Rico to U.S. bankruptcy laws

IOWA CITY, Iowa, July 7 (Reuters) - U.S. Democratic
presidential hopeful Hillary Clinton on Tuesday joined calls for
changes in U.S. bankruptcy laws that would enable Puerto Rico's
public entities to restructure some $72 billion in debt.

In Washington, two Democratic senators hope to move forward
within weeks with legislation in Congress that would allow the
U.S. territory to restructure debts in bankruptcy court, instead
of risking chaos.

Governor Alejandro Garcia Padilla of Puerto Rico dropped a
bombshell on debt holders a week ago by saying he wanted to
restructure debt and postpone bond payments. He urged changes to
U.S. bankruptcy laws that currently exclude Puerto Rico.

Like U.S. states, Puerto Rico cannot file for bankruptcy
protection. But Puerto Rico's public entities do not have the
ability of U.S. municipalities to enlist Chapter 9 of the U.S.
Bankruptcy Code to restructure their debt.

"As a first step, Congress should provide Puerto Rico the
same authority that states already have to enable severely
distressed government entities, including municipalities and
public corporations, to restructure their debts under Chapter
9," Clinton said in a statement given to Reuters.

Puerto Rico has been in a recession for nearly a decade and
has an unemployment rate of more than 12 percent while some 40
percent of the population lives below the U.S. poverty line,
according to government data.

Clinton, a former secretary of state, U.S. senator and first
lady, is the front runner for the Democratic nomination in the
November 2016 presidential election.

U.S. Senator Bernie Sanders of Vermont and former Maryland
Governor Martin O'Malley, both Clinton rivals for the Democratic
nomination, have also endorsed easing the bankruptcy laws also
for Puerto Rico.

Residents of Puerto Rico are not entitled to electoral votes
for president, but Puerto Ricans make up the second largest
Hispanic origin group in the United States after Mexicans.

A bill proposed by Puerto Rico's non-voting representative
in Congress to allow access to Chapter 9 bankruptcy laws stalled
in the Republican-run House of Representatives after a hearing
in February.

Now Democratic senators Richard Blumenthal of Connecticut
and Chuck Schumer of New York are readying a similar bill.

MOM AND POP INVESTORS

"It's much broader than just Puerto Rico's problem because
the bondholders and creditors are on the American mainland and
perhaps even throughout the world," Blumenthal told Reuters in
an interview.

"A lot of Americans hold these bonds ... they are entitled
to an orderly and rational process so that they receive the most
possible payment as quickly as possible," he said.

A significant number of American mom and pop investors have
exposure to Puerto Rico. About 52 percent of muni open ended
funds are invested in Puerto Rico bonds according to data from
Morningstar.

The White House said last week that it did not contemplate a
federal bailout but that Congress should examine whether Puerto
Rico's government-owned corporations should be able to access
Chapter 9 bankruptcy protection.

Blumenthal and Schumer are searching for Republican
co-sponsors in the Senate, which like the House has a Republican
majority. But some key Republicans seem unimpressed.

Some creditors are opposed to Chapter 9, fearful that it
will weaken their negotiating position and reduce their chances
of recovering their money.

Republican presidential candidate Jeb Bush said in April
that he thinks Puerto Rico's public agencies should have the
ability to use U.S. bankruptcy laws.

Clinton said "inconsistent and incoherent" application of
U.S. federal law had contributed to Puerto Rico's economic
situation, and its economy had shrunk in eight of the last nine
years.

"One troubling example of this treatment is the lack of
equity in federal funding for Puerto Rico under Medicaid and
Medicare," Clinton said of the U.S. government healthcare
programs.
(Reporting by Amanda Becker in Iowa; additional reporting by
Megan Davies in New York and Susan Cornwell in Washington;
Editing by Nick Macfie and Howard Goller)